Notes to Consolidated Financial Statements (Continued)
Note 2 - Summary of Significant Accounting Policies (Continued)
Loans Held for Sale
Loans originated by the Bank's mortgage banking subsidiary, Quaint Oak Mortgage, LLC, are intended for sale in the secondary market and are carried at the lower of cost or fair value. Gains and losses on loan sales (sales proceeds minus carrying value) are recorded in noninterest income, and direct loan origination costs and fees are deferred at origination of the loan and are
recognized in noninterest income upon sale of the loan.
Bank Owned Life Insurance ("BOLl")
The Company purchases bank owned life insurance as a mechanism for funding various employee benefit costs. The Company is the beneficiary of these policies that insure the lives of certain officers of its subsidiaries. The Company has recognized the cash surrender value under the insurance policies as an asset in the Consolidated Balance Sheets. Changes in the cash surrender value are recorded in non-interest income in the Consolidated Statements of Income.
Premises and Equipment
Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the expected useful lives of the related assets that range from three to thirty-nine years. The costs of maintenance and repairs are expensed as incurred. Costs of major additions and improvements are capitalized.
Intangible Assets
Intangible assets on the consolidated balance sheets represent the acquisition by Quaint Oak Insurance Agency of the renewal rights to the book of business produced and serviced by Signature Insurance Services, LLC on August 1, 2016 at a total cost of $1.0 million. Based on a valuation, $515,000 of the purchase price was determined to be goodwill and $485,000 was determined to be related to the renewal rights to the book of business and deemed an other intangible asset. The renewal rights are being amortized over a ten year period based upon the annual retention rate of the book of business.
The Company will complete a goodwill and other intangible asset analysis at least on an annual basis or more often if events and circumstances indicate that there may be impairment.
Notes to Consolidated Financial Statements (Continued)
Note 2 - Summary of Significant Accounting Policies (Continued)
Other Real Estate Owned
Other real estate owned or foreclosed assets are comprised of property acquired through a foreclosure proceeding or acceptance of a deed in lieu of foreclosure and loans classified as in-substance foreclosures. A loan is classified as in-substance foreclosure when the Bank has taken possession of the collateral regardless of whether formal foreclosure proceedings take place. Other real estate properties are initially recorded at fair value, net of estimated selling costs at the date of foreclosure, establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of cost or fair value less estimated costs to sell. Net revenue and expenses from operations and additions to the valuation allowance are included in other expenses.
The Company has three one-to-four family residential non-owner occupied properties for which foreclosure proceedings are in process at December 31, 2016. The total recorded investment is $435,000.
Advertising Costs
The Company expenses all advertising costs as incurred. Advertising costs are included in non-interest expense on the Consolidated Statements of Income.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets.
Income Taxes
Deferred income taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
The Company follows guidance related to accounting for uncertainty in income taxes, which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions. A tax position is recognized as a benefit only if it is more likely than not that the tax position would be sustained in a tax examination, with a tax examination presumed to occur. The amount recognized is the largest amount of tax benefit that has more than 50 percent likelihood of being realized upon examination. For tax positions not meeting the more likely than not test, no tax benefit is recorded. The Company had no material uncertain tax positions or accrued interest and penalties as of December 31, 2016 and 2015. The Company's policy is to account for interest as a component of interest expense and penalties as components of other expense. The Company is no longer subject to examination by taxing authorities for the years before January 1, 2013.
Notes to Consolidated Financial Statements (Continued)
Note 2 - Summary of Significant Accounting Policies (Continued)
Comprehensive Income (Loss)
Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the stockholders' equity section of the balance sheet, such items, along with net income, are components of comprehensive income (loss).
Treasury Stock and Unallocated Common Stock
The acquisition of treasury stock by the Company, including unallocated stock held by certain benefit plans, is recorded under the cost method. At the date of subsequent reissue, treasury stock is reduced by the cost of such stock on a first-in, first-out basis with any excess proceeds credited to additional paid-in capital.
Share-Based Compensation
Stock compensation accounting guidance requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost is measured based on the grant date fair value of the equity or liability instruments issued. The stock compensation accounting guidance covers a wide range of share-based compensation arrangements including stock option and restricted share plans.
The stock compensation accounting guidance requires that compensation cost for all stock awards be calculated and recognized over the employees' service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. A Black-Scholes model is used to estimate the fair value of stock options, while the closing price of the Company's common stock on the grant date is used for restricted stock awards.
At December 31, 2016, the Company has three share-based plans: the 2008 Recognition and Retention Plan ("RRP"), the 2008 Stock Option Plan, and the 2013 Stock Incentive Plan. Awards under these plans were made in May 2008 and 2013. These plans are more fully described in Note 14.
The Company also has an employee stock ownership plan ("ESOP"). This plan is more fully described in Note 14. As ESOP shares are committed to be released and allocated among participants, the Company recognizes compensation expense equal to the average market price of the shares over the period earned.
Earnings Per Share
Amounts reported in earnings per share reflect earnings available to common stockholders for the period divided by the weighted average number of shares of common stock outstanding during the period, exclusive of unearned ESOP shares, unvested restricted stock (RRP) shares and treasury shares. Stock options and unvested restricted stock are regarded as potential common stock and are considered in the diluted earnings per share calculations to the extent they would have a dilutive effect if converted to common stock, computed using the "treasury stock" method.
Off-Balance Sheet Financial Instruments
In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit. Such financial instruments are recorded in the consolidated balance sheet when they are funded.
Notes to Consolidated Financial Statements (Continued)
Note 2 - Summary of Significant Accounting Policies (Continued)
Reclassifications
Certain items in the 2015 consolidated financial statements have been reclassified to conform to the presentation in the 2016 consolidated financial statements. Such reclassifications did not have a material impact on the overall consolidated financial statements.
Recent Accounting Pronouncements
In May 2014, the FASB issued
ASU 2014-09, Revenue from Contracts with Customers
(a new revenue recognition standard). The Update's core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this Update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. However, in August 2015, the FASB issued
ASU 2015-14, Revenue from Contracts with Customers (Topic 606)
to defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Because the guidance does not apply to revenue associated with financial instruments, including loans and securities, we do not expect new standard, or any of the amendments, to result in a material change from our current accounting for revenue because the majority of the Company's financial instruments are not within the scope of Topic 606. However, we do expect that the standard will result in new disclosure requirements, which are currently being evaluated.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
. This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.
Notes to Consolidated Financial Statements (Continued)
Note 2 – Financial Statement Presentation and Significant Accounting Policies (Continued)
Recent Accounting Pronouncements (Continued)
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
. The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact to the financial statements. Based on the Company's preliminary analysis of its current portfolio, the impact to the Company's balance sheet is estimated to result in less than a 1% increase in assets and liabilities. The Company also anticipates additional disclosures to be provided at adoption.
In March 2016, the FASB issued ASU 2016-09,
Compensation – Stock Compensation (Topic 718)
. The
amendments in this Update affect all entities that issue share-based payment awards to their employees. The standards in this Update provide simplification for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as with equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. In addition to those simplifications, the amendments eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004),
Share-Based Payment
. This should not result in a change in practice because the guidance that is being superseded was never effective. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. This Update is not expected to have a significant impact on the Company's financial statements.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments
("ASU 2016-13"), which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management's current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will show the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.
Notes to Consolidated Financial Statements (Continued)
Note 2 – Financial Statement Presentation and Significant Accounting Policies (Continued)
Recent Accounting Pronouncements (Continued)
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
("ASU 2016-15"), which addresses eight specific cash flow issues with the objective of reducing diversity in practice. Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact the adoption of the standard will have on the Company's statement of cash flows.
In December 2016, the FASB issued ASU 2016-19,
Technical Corrections and Improvements
, which represents changes to clarify, correct errors, or make minor improvements to the Accounting Standards Codification. The amendments make the Accounting Standards Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. Most of the amendments in this Update do not require transition guidance and are effective upon issuance of this Update. This Update is not expected to have a significant impact on the Company's financial statements.
In December 2016, the FASB issued ASU 2016-20
, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
"ASU 2016-20". This Update, among others things, clarifies that guarantee fees within the scope of Topic 460,
Guarantees
, (other than product or service warranties) are not within the scope of Topic 606. The effective date and transition requirements for ASU 2016-20 are the same as the effective date and transition requirements for the new revenue recognition guidance. For public entities with a calendar year-end, the new guidance is effective in the quarter and year beginning January 1, 2018. The Company is currently evaluating the impact the adoption of the standard will have on the Company's financial position or results of operations.
Note 3 – Stock Split
On August 13, 2015, the Company's Board of Directors declared a two-for-one stock split in the form of a 100% stock dividend effective for shareholders of record on August 24, 2015 that was distributed on September 8, 2015. All per share amounts in this report have been restated to reflect this stock split. An amount equal to the par value of the additional common shares issued pursuant to the stock split was reflected as a transfer from additional paid-in capital to common stock on the consolidated financial statements as of and for the years ended December 31, 2016 and 2015.
Note 4 – Earnings Per Share
Earnings per share ("EPS") consists of two separate components, basic EPS and diluted EPS. Basic EPS is computed based on the weighted average number of shares of common stock outstanding for each period presented. Diluted EPS is calculated based on the weighted average number of shares of common stock outstanding plus dilutive common stock equivalents ("CSEs"). CSEs consist of shares that are assumed to have been purchased with the proceeds from the exercise of stock options, as well as unvested restricted stock (RRP) shares. Common stock equivalents which are considered antidilutive are not included for the purposes of this calculation. For the years ended December 31, 2016 and 2015, all unvested restricted stock program awards and outstanding stock options representing shares were dilutive.
Notes to Consolidated Financial Statements (Continued)
Note 4 – Earnings Per Share (Continued)
The following table sets forth the composition of the weighted average shares (denominator) used in the basic and dilutive earnings per share computations.
|
|
For the Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Net Income
|
|
$
|
1,498,000
|
|
|
$
|
1,271,000
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic
|
|
|
1,781,410
|
|
|
|
1,718,456
|
|
Effect of dilutive common stock equivalents
|
|
|
154,493
|
|
|
|
164,010
|
|
Adjusted weighted average shares outstanding – diluted
|
|
|
1,935,903
|
|
|
|
1,882,466
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.84
|
|
|
$
|
0.74
|
|
Diluted earnings per share
|
|
$
|
0.77
|
|
|
$
|
0.68
|
|
Note 5 – Accumulated Other Comprehensive Loss
The following table presents the changes in accumulated other comprehensive loss by component, net of tax, for the years ended December 31, 2016 and 2015 (in thousands):
|
|
Unrealized Losses
on Investment Securities
Available for Sale (1)
|
|
|
|
2016
|
|
|
2015
|
|
Balance beginning of the year
|
|
$
|
(12
|
)
|
|
$
|
(36
|
)
|
Other comprehensive loss before reclassifications
|
|
|
(26
|
)
|
|
|
(26
|
)
|
Amount reclassified from accumulated other comprehensive loss
|
|
|
--
|
|
|
|
50
|
|
Total other comprehensive (loss) income
|
|
|
(26
|
)
|
|
|
24
|
|
Balance end of the year
|
|
$
|
(38
|
)
|
|
$
|
(12
|
)
|
________________________
(1)
|
All amounts are net of tax. Amounts in parentheses indicate debits.
|
The following table presents significant amounts reclassified out of each component of accumulated other comprehensive loss for the years ended December 31, 2016 and 2015 (in thousands):
|
|
|
Amount Reclassified from Accumulated
|
|
Affected Line Item in the
|
Details About Other Comprehensive Loss
|
|
|
Other Comprehensive Loss (1)
|
|
Consolidatedf Statements of Income
|
|
|
|
For the Year Ended December 31,
|
|
|
|
|
|
2016
|
|
|
|
2015
|
|
|
Sale of available for sale securities
|
|
$
|
--
|
|
|
$
|
(75
|
)
|
Loss on sales of investment securities
|
Tax effect
|
|
|
--
|
|
|
|
25
|
|
Income taxes
|
Total reclassification for the period
|
|
$
|
--
|
|
|
$
|
(50
|
)
|
|
_________________
(1)
|
Amounts in parentheses indicate debits.
|
Notes to Consolidated Financial Statements (Continued)
Note 6 – Investment in Interest-Earning Time Deposits
The investment in interest-earning time deposits as of December 31, 2016 and 2015, by contractual maturity, is shown below (in thousands):
|
|
2016
|
|
|
2015
|
|
Due in one year or less
|
|
$
|
2,849
|
|
|
$
|
3,585
|
|
Due after one year through five years
|
|
|
3,249
|
|
|
|
2,551
|
|
Total
|
|
$
|
6,098
|
|
|
$
|
6,136
|
|
Note 7 – Investment Securities Available for Sale
The amortized cost, gross unrealized gains and losses, and fair value of investment securities available for sale at December 31, 2016 and 2015 are summarized below (in thousands):
|
|
December 31, 2016
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Governmental National Mortgage Association securities
|
|
$
|
6,608
|
|
|
$
|
1
|
|
|
$
|
(19
|
)
|
|
$
|
6,590
|
|
Federal Home Loan Mortgage Corporation securities
|
|
|
1,892
|
|
|
|
--
|
|
|
|
(21
|
)
|
|
|
1,871
|
|
Federal National Mortgage Association securities
|
|
|
752
|
|
|
|
--
|
|
|
|
(12
|
)
|
|
|
740
|
|
Total mortgage-backed securities
|
|
|
9,252
|
|
|
|
1
|
|
|
|
(52
|
)
|
|
|
9,201
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency
|
|
|
360
|
|
|
|
--
|
|
|
|
(6
|
)
|
|
|
354
|
|
Total available-for-sale-securities
|
|
$
|
9,612
|
|
|
$
|
1
|
|
|
$
|
(58
|
)
|
|
$
|
9,555
|
|
|
|
December 31, 2015
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Governmental National Mortgage Association securities
|
|
$
|
2,003
|
|
|
$
|
-
|
|
|
$
|
(13
|
)
|
|
$
|
1,990
|
|
Federal Home Loan Mortgage Corporation securities
|
|
|
1,020
|
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
1,015
|
|
Total mortgage-backed securities
|
|
$
|
3,023
|
|
|
$
|
-
|
|
|
$
|
(18
|
)
|
|
$
|
3,005
|
|
The amortized cost and fair value of debt securities at December 31, 2016, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands):
|
|
Available for Sale
|
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Due after one year through five years
|
|
$
|
360
|
|
|
$
|
354
|
|
Due after ten years
|
|
|
9,252
|
|
|
|
9,201
|
|
Total
|
|
$
|
9,612
|
|
|
$
|
9,555
|
|
Notes to Consolidated Financial Statements (Continued)
Note 7 – Investment Securities Available for Sale (Continued)
The following tables show the Company's gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at December 31, 2016 and 2015 (in thousands):
|
|
December 31, 2016
|
|
|
|
|
|
|
Less than Twelve Months
|
|
|
Twelve Months or Greater
|
|
|
Total
|
|
|
|
Number of
Securities
|
|
|
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
Governmental National Mortgage Association mortgage-backed securities
|
|
|
8
|
|
|
$
|
5,874
|
|
|
$
|
(19
|
)
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
5,874
|
|
|
$
|
(19
|
)
|
Federal Home Loan Mortgage Corporation mortgage-backed securities
|
|
|
2
|
|
|
|
1,871
|
|
|
|
(21
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
1,871
|
|
|
|
(21
|
)
|
Federal National Mortgage Association mortgage-backed securities
|
|
|
1
|
|
|
|
740
|
|
|
|
(12
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
740
|
|
|
|
(12
|
)
|
Debt securities, U.S. government agency
|
|
|
1
|
|
|
|
354
|
|
|
|
(6
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
354
|
|
|
|
(6
|
)
|
Total
|
|
|
12
|
|
|
$
|
8,839
|
|
|
$
|
(58
|
)
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
8,839
|
|
|
$
|
(58
|
)
|
|
|
December 31, 2015
|
|
|
|
|
|
|
Less than Twelve Months
|
|
|
Twelve Months or Greater
|
|
|
Total
|
|
|
|
Number of
Securities
|
|
|
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
Governmental National Mortgage Association mortgage-backed securities
|
|
|
2
|
|
|
$
|
1,990
|
|
|
$
|
(13
|
)
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
1,990
|
|
|
$
|
(13
|
)
|
Federal National Mortgage Association mortgage-backed securities
|
|
|
1
|
|
|
|
1,015
|
|
|
|
(5
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
1,015
|
|
|
|
(5
|
)
|
Total
|
|
|
3
|
|
|
$
|
3,005
|
|
|
$
|
(18
|
)
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
3,005
|
|
|
$
|
(18
|
)
|
At December 31, 2016, there were twelve securities in an unrealized loss position that at such date had an aggregate depreciation of 0.65% from the Company's amortized cost basis. Management believes that the estimated fair value of the securities disclosed above is primarily dependent on the movement of market interest rates. Management evaluated the length of time and the extent to which the fair value has been less than cost and the financial condition and near term prospects of the issuer, including any specific events which may influence the operations of the issuer. The Company has the ability and intent to hold the securities until the anticipated recovery of fair value occurs. Management does not believe any individual unrealized loss as of December 31, 2016 represents an other-than-temporary impairment. There were no impairment charges recognized during the year ended December 31, 2016 or 2015.
Notes to Consolidated Financial Statements (Continued)
Note 7 – Investment Securities Available for Sale (Continued)
For the year ended December 31, 2016, there were no sales of investment securities. For the year ended December 31, 2015, the Company sold its investment securities available for sale portfolio consisting of two bond funds totaling $1.7 million and realized gross losses of $75,000 on the transaction. There were no realized gross gains on the transaction.
Note 8 - Loans Receivable, Net and Allowance for Loan Losses
T
he composition of net loans receivable is as follows (in thousands):
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
One-to-four family residential:
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
5,389
|
|
|
$
|
5,777
|
|
Non-owner occupied
|
|
|
51,893
|
|
|
|
51,036
|
|
Total one-to-four family residential
|
|
|
57,282
|
|
|
|
56,813
|
|
Multi-family (five or more) residential
|
|
|
14,641
|
|
|
|
12,402
|
|
Commercial real estate
|
|
|
77,730
|
|
|
|
49,765
|
|
Construction
|
|
|
15,355
|
|
|
|
16,100
|
|
Home equity
|
|
|
4,775
|
|
|
|
7,409
|
|
Total real estate loans
|
|
|
169,783
|
|
|
|
142,489
|
|
|
|
|
|
|
|
|
|
|
Commercial business
|
|
|
9,295
|
|
|
|
2,576
|
|
Other consumer
|
|
|
26
|
|
|
|
71
|
|
Total Loans
|
|
|
179,104
|
|
|
|
145,136
|
|
|
|
|
|
|
|
|
|
|
Deferred loan fees and costs
|
|
|
(692
|
)
|
|
|
(518
|
)
|
Allowance for loan losses
|
|
|
(1,605
|
)
|
|
|
(1,313
|
)
|
Net Loans
|
|
$
|
176,807
|
|
|
$
|
143,305
|
|
The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company's internal risk rating system as of December 31, 2016 and 2015
(in thousands):
|
|
December 31, 2016
|
|
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
One-to-four family residential owner occupied
|
|
$
|
5,389
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
5,389
|
|
One-to-four family residential non-owner occupied
|
|
|
50,864
|
|
|
|
122
|
|
|
|
907
|
|
|
|
--
|
|
|
|
51,893
|
|
Multi-family residential
|
|
|
14,641
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
14,641
|
|
Commercial real estate
|
|
|
76,281
|
|
|
|
117
|
|
|
|
1,332
|
|
|
|
--
|
|
|
|
77,730
|
|
Construction
|
|
|
13,355
|
|
|
|
--
|
|
|
|
2,000
|
|
|
|
--
|
|
|
|
15,355
|
|
Home equity
|
|
|
4,775
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
4,775
|
|
Commercial business
|
|
|
9,295
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
9,295
|
|
Other consumer
|
|
|
26
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
26
|
|
Total
|
|
$
|
174,626
|
|
|
$
|
239
|
|
|
$
|
4,239
|
|
|
$
|
--
|
|
|
$
|
179,104
|
|
Notes to Consolidated Financial Statements (Continued)
Note 8 - Loans Receivable, Net and Allowance for Loan Losses (Continued)
|
|
December 31, 2015
|
|
|
|
Pass
|
|
|
Special
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
One-to-four family residential owner occupied
|
|
$
|
5,777
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
5,777
|
|
One-to-four family residential non-owner occupied
|
|
|
49,457
|
|
|
|
331
|
|
|
|
1,248
|
|
|
|
--
|
|
|
|
51,036
|
|
Multi-family residential
|
|
|
12,402
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
12,402
|
|
Commercial real estate
|
|
|
48,185
|
|
|
|
262
|
|
|
|
1,318
|
|
|
|
--
|
|
|
|
49,765
|
|
Construction
|
|
|
14,621
|
|
|
|
--
|
|
|
|
1,479
|
|
|
|
--
|
|
|
|
16,100
|
|
Home equity
|
|
|
7,409
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
7,409
|
|
Commercial business
|
|
|
2,576
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2,576
|
|
Other consumer
|
|
|
71
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
71
|
|
Total
|
|
$
|
140,498
|
|
|
$
|
593
|
|
|
$
|
4,045
|
|
|
$
|
--
|
|
|
$
|
145,136
|
|
The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of December 31, 2016 as well as the average recorded investment and related interest income for the year then ended (in thousands):
|
|
December 31, 2016
|
|
|
|
|
|
|
Unpaid
Principal
Balance
|
|
|
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential owner occupied
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
One-to-four family residential non-owner occupied
|
|
|
925
|
|
|
|
925
|
|
|
|
--
|
|
|
|
1,208
|
|
|
|
56
|
|
Multi-family residential
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Commercial real estate
|
|
|
660
|
|
|
|
660
|
|
|
|
--
|
|
|
|
660
|
|
|
|
7
|
|
Construction
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Home equity
|
|
|
49
|
|
|
|
49
|
|
|
|
--
|
|
|
|
82
|
|
|
|
6
|
|
Commercial business
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Other consumer
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential owner occupied
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
One-to-four family residential non-owner occupied
|
|
|
167
|
|
|
|
167
|
|
|
|
28
|
|
|
|
169
|
|
|
|
8
|
|
Multi-family residential
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Commercial real estate
|
|
|
133
|
|
|
|
133
|
|
|
|
11
|
|
|
|
133
|
|
|
|
9
|
|
Construction
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Home equity
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Commercial business
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Other consumer
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential owner occupied
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
One-to-four family residential non-owner occupied
|
|
|
1,092
|
|
|
|
1,092
|
|
|
|
28
|
|
|
|
1,377
|
|
|
|
64
|
|
Multi-family residential
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Commercial real estate
|
|
|
793
|
|
|
|
793
|
|
|
|
11
|
|
|
|
793
|
|
|
|
16
|
|
Construction
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Home equity
|
|
|
49
|
|
|
|
49
|
|
|
|
--
|
|
|
|
82
|
|
|
|
6
|
|
Commercial business
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Other consumer
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Total
|
|
$
|
1,934
|
|
|
$
|
1,934
|
|
|
$
|
39
|
|
|
$
|
2,252
|
|
|
$
|
86
|
|
Notes to Consolidated Financial Statements (Continued)
Note 8 - Loans Receivable, Net and Allowance for Loan Losses (Continued)
The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of December 31, 2015 as well as the average recorded investment and related interest income for the year then ended (in thousands):
|
|
December 31, 2015
|
|
|
|
|
|
|
Unpaid
Principal
Balance
|
|
|
|
|
|
Average
Recorded
Investment
|
|
|
Interest
Income
Recognized
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential owner occupied
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
828
|
|
|
$
|
15
|
|
One-to-four family residential non-owner occupied
|
|
|
653
|
|
|
|
659
|
|
|
|
--
|
|
|
|
1,464
|
|
|
|
62
|
|
Multi-family residential
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
66
|
|
|
|
5
|
|
Commercial real estate
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1,085
|
|
|
|
77
|
|
Construction
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Home equity
|
|
|
84
|
|
|
|
84
|
|
|
|
--
|
|
|
|
87
|
|
|
|
7
|
|
Commercial business
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Other consumer
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential owner occupied
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
One-to-four family residential non-owner occupied
|
|
|
321
|
|
|
|
321
|
|
|
|
33
|
|
|
|
556
|
|
|
|
22
|
|
Multi-family residential
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Commercial real estate
|
|
|
133
|
|
|
|
133
|
|
|
|
7
|
|
|
|
332
|
|
|
|
9
|
|
Construction
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Home equity
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
45
|
|
|
|
4
|
|
Commercial business
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Other consumer
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential owner occupied
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
828
|
|
|
$
|
15
|
|
One-to-four family residential non-owner occupied
|
|
|
974
|
|
|
|
980
|
|
|
|
33
|
|
|
|
2,020
|
|
|
|
84
|
|
Multi-family residential
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
66
|
|
|
|
5
|
|
Commercial real estate
|
|
|
133
|
|
|
|
133
|
|
|
|
7
|
|
|
|
1,417
|
|
|
|
86
|
|
Construction
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Home equity
|
|
|
84
|
|
|
|
84
|
|
|
|
--
|
|
|
|
132
|
|
|
|
11
|
|
Commercial business
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Other consumer
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Total
|
|
$
|
1,191
|
|
|
$
|
1,197
|
|
|
$
|
40
|
|
|
$
|
4,463
|
|
|
$
|
201
|
|
The loan portfolio also includes certain loans that have been modified in a troubled debt restructuring, where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from loss mitigation activities and could include reductions in the interest rate, payment extensions, forbearance, or other actions. At December 31, 2016, the Company had eight loans totaling $733,000 that were identified as troubled debt restructurings. All eight of these loans were performing in accordance with their modified terms. At December 31, 2015, the Company had nine loans totaling $781,000 that were identified as troubled debt restructurings. All nine of these loans were performing in accordance with their modified terms at December 31, 2015. If a TDR is placed on non-accrual it is not reverted back to accruing status until the borrower makes timely payments as contracted for at least six months and future collection under the revised terms is probable.
During the year ended December 31, 2016, no new loans were identified as TDRs and one loan previously identified as a TDR was paid-off in the second quarter of 2016.
Notes to Consolidated Financial Statements (Continued)
Note 8 - Loans Receivable, Net and Allowance for Loan Losses (Continued)
The following tables present the Company's TDR loans as of December 31, 2016 and December 31, 2016 (dollar amounts in thousands):
|
|
December 31, 2016
|
|
|
|
Number of
Contracts
|
|
|
Recorded
Investment
|
|
|
Non-
Accrual
|
|
|
Accruing
|
|
|
Related
Allowance
|
|
One-to-four family residential owner occupied
|
|
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
One-to-four family residential non-owner occupied
|
|
|
5
|
|
|
|
551
|
|
|
|
--
|
|
|
|
551
|
|
|
|
28
|
|
Multi-family residential
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Commercial real estate
|
|
|
1
|
|
|
|
133
|
|
|
|
--
|
|
|
|
133
|
|
|
|
11
|
|
Construction
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Home equity
|
|
|
2
|
|
|
|
49
|
|
|
|
--
|
|
|
|
49
|
|
|
|
--
|
|
Commercial business
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Other consumer
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Total
|
|
|
8
|
|
|
$
|
733
|
|
|
$
|
--
|
|
|
$
|
733
|
|
|
$
|
39
|
|
|
|
December 31, 2015
|
|
|
|
Number of
Contracts
|
|
|
Recorded
Investment
|
|
|
Non-
Accrual
|
|
|
Accruing
|
|
|
Related
Allowance
|
|
One-to-four family residential owner occupied
|
|
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
One-to-four family residential non-owner occupied
|
|
|
5
|
|
|
|
564
|
|
|
|
--
|
|
|
|
564
|
|
|
|
25
|
|
Multi-family residential
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Commercial real estate
|
|
|
1
|
|
|
|
133
|
|
|
|
--
|
|
|
|
133
|
|
|
|
7
|
|
Construction
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Home equity
|
|
|
3
|
|
|
|
84
|
|
|
|
--
|
|
|
|
84
|
|
|
|
--
|
|
Commercial business
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Other consumer
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Total
|
|
|
9
|
|
|
$
|
781
|
|
|
$
|
--
|
|
|
$
|
781
|
|
|
$
|
32
|
|
The contractual aging of the TDRs in the tables above as of December 31, 2016 and 2015 is as follows (in thousands):
|
|
December 31, 2016
|
|
|
|
Accruing
Past Due
Less than 30
Days
|
|
|
Past Due
30-89 Days
|
|
|
Greater
than 90
Days
|
|
|
Non-
Accrual
|
|
|
Total
|
|
One-to-four family residential owner occupied
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
One-to-four family residential non-owner occupied
|
|
|
551
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
551
|
|
Multi-family residential
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Commercial real estate
|
|
|
133
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
133
|
|
Construction
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Home equity
|
|
|
49
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
49
|
|
Commercial business
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Other consumer
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Total
|
|
$
|
733
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
733
|
|
Notes to Consolidated Financial Statements (Continued)
Note 8 - Loans Receivable, Net and Allowance for Loan Losses (Continued)
|
|
December 31, 2015
|
|
|
|
Accruing
Past Due
Less than
30 Days
|
|
|
Past Due
30-89 Days
|
|
|
Greater
than 90
Days
|
|
|
Non-
Accrual
|
|
|
Total
|
|
One-to-four family residential owner occupied
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
One-to-four family residential non-owner occupied
|
|
|
564
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
564
|
|
Multi-family residential
|
|
|
-
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Commercial real estate
|
|
|
133
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
133
|
|
Construction
|
|
|
-
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Home equity
|
|
|
84
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
84
|
|
Commercial business
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Other consumer
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
-
|
|
Total
|
|
$
|
781
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
781
|
|
Any reserve for an impaired TDR loan is based upon the present value of the future expected cash flows discounted at the loan's original effective rate or upon the fair value of the collateral less costs to sell, if the loan is deemed collateral dependent. At December 31, 2016 there were no commitments to lend additional funds to debtors whose loan terms have been modified as TDRs.
The general practice of the Bank is to work with borrowers so that they are able to pay back their loan in full. If a borrower continues to be delinquent or cannot meet the terms of a TDR modification and the loan is determined to be uncollectible, the loan will be charged off.
Following is a summary, by loan portfolio class, of changes in the allowance for loan losses for the year ended December 31, 2016 and recorded investment in loans receivable based on impairment evaluation as of December 31, 2016 (in thousands):
|
|
|
|
|
|
1-4 Family
Residential
Owner
Occupied
|
|
|
1-4 Family
Residential
Non-
Owner
Occupied
|
|
|
Multi-
Family
Residential
|
|
|
Commercial
Real Estate
|
|
|
Construction
|
|
|
Home
Equity
|
|
|
Commercial
Business
and Other
Consumer
|
|
|
|
|
|
Total
|
|
Allowance for loan losses:
|
|
Beginning balance
|
|
$
|
55
|
|
|
$
|
486
|
|
|
$
|
81
|
|
|
$
|
389
|
|
|
$
|
153
|
|
|
$
|
50
|
|
|
$
|
18
|
|
|
$
|
81
|
|
|
$
|
1,313
|
|
Charge-offs
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Recoveries
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Provision
|
|
|
(14
|
)
|
|
|
17
|
|
|
|
22
|
|
|
|
227
|
|
|
|
(15
|
)
|
|
|
(13
|
)
|
|
|
69
|
|
|
|
(
1
|
)
|
|
|
292
|
|
Ending balance
|
|
$
|
41
|
|
|
$
|
503
|
|
|
$
|
103
|
|
|
$
|
616
|
|
|
$
|
138
|
|
|
$
|
37
|
|
|
$
|
87
|
|
|
$
|
80
|
|
|
$
|
1,605
|
|
Ending balance evaluated
for impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
|
|
$
|
--
|
|
|
$
|
28
|
|
|
$
|
--
|
|
|
$
|
11
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
39
|
|
Collectively
|
|
$
|
41
|
|
|
$
|
475
|
|
|
$
|
103
|
|
|
$
|
605
|
|
|
$
|
138
|
|
|
$
|
37
|
|
|
$
|
87
|
|
|
$
|
80
|
|
|
$
|
1,566
|
|
Loans receivable:
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
5,389
|
|
|
$
|
51,893
|
|
|
$
|
14,641
|
|
|
$
|
77,730
|
|
|
$
|
15,355
|
|
|
$
|
4,775
|
|
|
$
|
9,321
|
|
|
$
|
--
|
|
|
$
|
179,104
|
|
Ending balance evaluated
for impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
|
|
$
|
--
|
|
|
$
|
1,092
|
|
|
$
|
--
|
|
|
$
|
793
|
|
|
$
|
--
|
|
|
$
|
49
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
1,934
|
|
Collectively
|
|
$
|
5,389
|
|
|
$
|
50,801
|
|
|
$
|
14,641
|
|
|
$
|
76,937
|
|
|
$
|
15,355
|
|
|
$
|
4,726
|
|
|
$
|
9,321
|
|
|
$
|
--
|
|
|
$
|
177,170
|
|
Notes to Consolidated Financial Statements (Continued)
Note 8 - Loans Receivable, Net and Allowance for Loan Losses (Continued)
The Bank allocated increased allowance for loan loss provisions to the commercial real estate, commercial business, and multi-family portfolio classes for the year ended December 31, 2016, due primarily to increased balances in these portfolio classes. The Bank allocated increased allowance for loan loss provisions to the 1-4 family residential non-owner occupied portfolio class for the year ended December 31, 2016, due primarily to increased specific reserves in this portfolio class. The Bank allocated decreased allowance for loan loss provisions to the construction, home equity, and one-to-four family owner occupied classes for the year ended December 31, 2016 due decreased balances or changes to qualitative factors in these portfolio classes.
Following is a summary, by loan portfolio class, of changes in the allowance for loan losses for the year ended December 31, 2015 and recorded investment in loans receivable based on impairment evaluation as of December 31, 2015 (in thousands):
|
|
December 31, 2015
|
|
|
|
1-4 Family
Residential
Owner
Occupied
|
|
|
1-4 Family
Residential
Non-
Owner
Occupied
|
|
|
Multi-
Family
Residential
|
|
|
Commercial
Real Estate
|
|
|
Construction
|
|
|
Home
Equity
|
|
|
Commercial
Business and
Other
Consumer
|
|
|
|
|
|
Total
|
|
Allowance for loan losses:
|
|
Beginning balance
|
|
$
|
75
|
|
|
$
|
418
|
|
|
$
|
60
|
|
|
$
|
324
|
|
|
$
|
122
|
|
|
$
|
46
|
|
|
$
|
7
|
|
|
$
|
96
|
|
|
$
|
1,148
|
|
Charge-offs
|
|
|
--
|
|
|
|
(110
|
)
|
|
|
--
|
|
|
|
(21
|
)
|
|
|
--
|
|
|
|
(45
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
(176
|
)
|
Recoveries
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
21
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
21
|
|
Provision
|
|
|
(20
|
)
|
|
|
178
|
|
|
|
21
|
|
|
|
65
|
|
|
|
31
|
|
|
|
49
|
|
|
|
11
|
|
|
|
(15
|
)
|
|
|
320
|
|
Ending balance
|
|
$
|
55
|
|
|
$
|
486
|
|
|
$
|
81
|
|
|
$
|
389
|
|
|
$
|
153
|
|
|
$
|
50
|
|
|
$
|
18
|
|
|
$
|
81
|
|
|
$
|
1,313
|
|
Ending balance evaluated
for impairment:
|
|
Individually
|
|
$
|
--
|
|
|
$
|
33
|
|
|
$
|
--
|
|
|
$
|
7
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
40
|
|
Collectively
|
|
$
|
55
|
|
|
$
|
453
|
|
|
$
|
81
|
|
|
$
|
382
|
|
|
$
|
153
|
|
|
$
|
50
|
|
|
$
|
18
|
|
|
$
|
81
|
|
|
$
|
1,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable:
|
|
Ending balance
|
|
$
|
5,777
|
|
|
$
|
51,036
|
|
|
$
|
12,402
|
|
|
$
|
49,765
|
|
|
$
|
16,100
|
|
|
$
|
7,409
|
|
|
$
|
2,647
|
|
|
$
|
--
|
|
|
$
|
145,136
|
|
Ending balance evaluated
for impairment
|
|
Individually
|
|
$
|
--
|
|
|
$
|
974
|
|
|
$
|
--
|
|
|
$
|
133
|
|
|
$
|
--
|
|
|
$
|
84
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
1,191
|
|
Collectively
|
|
$
|
5,777
|
|
|
$
|
50,062
|
|
|
$
|
12,401
|
|
|
$
|
49,632
|
|
|
$
|
16,100
|
|
|
$
|
7,325
|
|
|
$
|
2,647
|
|
|
$
|
--
|
|
|
$
|
143,945
|
|
The Bank allocated increased allowance for loan loss provisions to the one-to-four family residential non-owner occupied and commercial real estate portfolio class for the year ended December 31, 2015, due to increased balances and charge-off activity in these portfolio classes. The Bank allocated increased allowance for loan loss provisions to the home equity portfolio class for the year ended December 31, 2015 due to increased charge-off activity in this portfolio class. The Bank allocated increased allowance for loan loss provisions to the construction, multi-family residential and commercial business class for the year ended December 31, 2015 due to increased balances in these portfolio classes. The Bank allocated decreased allowance for loan loss provisions to the one-to-four family owner occupied class for the year ended December 31, 2015 due decreased balances and charge-off activity in this portfolio class.
Notes to Consolidated Financial Statements (Continued)
Note 8 - Loans Receivable, Net and Allowance for Loan Losses (Continued)
The following table presents non-accrual loans by classes of the loan portfolio as of December 31, 2016 and 2015 (in thousands):
|
|
|
|
|
December 31,
2015
|
|
One-to-four family residential owner occupied
|
|
$
|
--
|
|
|
$
|
--
|
|
One-to-four family residential non-owner occupied
|
|
|
541
|
|
|
|
186
|
|
Multi-family residential
|
|
|
--
|
|
|
|
--
|
|
Commercial real estate
|
|
|
660
|
|
|
|
--
|
|
Construction
|
|
|
--
|
|
|
|
--
|
|
Home equity
|
|
|
--
|
|
|
|
--
|
|
Commercial business
|
|
|
--
|
|
|
|
--
|
|
Other consumer
|
|
|
--
|
|
|
|
--
|
|
Total
|
|
$
|
1,201
|
|
|
$
|
186
|
|
Non-performing loans, which consist of non-accruing loans plus accruing loans 90 days or more past due, amounted to $1.9 million and $852,000 at December 31, 2016 and 2015, respectively. For the delinquent loans in our portfolio, we have considered our ability to collect the past due interest, as well as the principal balance of the loan, in order to determine whether specific loans should be placed on non-accrual status. In cases where our evaluations have determined that the principal and interest balances are collectible, we have continued to accrue interest.
For the years ended December 31, 2016 and 2015 there was no interest income recognized on non-accrual loans on a cash basis. Interest income foregone on non-accrual loans was approximately $115,000 and $10,000 for the years ended December 31, 2016 and 2015, respectively.
The performance and credit quality of the loan portfolio are also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following tables present the classes of the loan portfolio summarized by the past due status as of December 31, 2016 and 2015 (in thousands):
|
|
December 31, 2016
|
|
|
|
|
|
|
Greater
than 90
Days
|
|
|
|
|
|
|
|
|
|
|
|
Loans
Receivable >
90 Days and
Accruing
|
|
|
|
|
|
One-to-four family residential owner occupied
|
|
$
|
310
|
|
|
$
|
9
|
|
|
$
|
319
|
|
|
$
|
5,070
|
|
|
$
|
5,389
|
|
|
$
|
9
|
|
One-to-four family residential non-owner occupied
|
271
|
|
|
|
778
|
|
|
|
1,049
|
|
|
|
50,844
|
|
|
|
51,893
|
|
|
|
237
|
|
Multi-family residential
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
14,641
|
|
|
|
14,641
|
|
|
|
--
|
|
Commercial real estate
|
|
|
385
|
|
|
|
777
|
|
|
|
1,162
|
|
|
|
76,568
|
|
|
|
77,730
|
|
|
|
117
|
|
Construction
|
|
|
596
|
|
|
|
308
|
|
|
|
904
|
|
|
|
14,451
|
|
|
|
15,355
|
|
|
|
308
|
|
Home equity
|
|
|
115
|
|
|
|
--
|
|
|
|
115
|
|
|
|
4,660
|
|
|
|
4,775
|
|
|
|
--
|
|
Commercial business
|
|
|
43
|
|
|
|
--
|
|
|
|
43
|
|
|
|
9,252
|
|
|
|
9,295
|
|
|
|
--
|
|
Other consumer
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
26
|
|
|
|
26
|
|
|
|
--
|
|
Total
|
|
$
|
1,720
|
|
|
$
|
1,872
|
|
|
$
|
3,592
|
|
|
$
|
175,512
|
|
|
$
|
179,104
|
|
|
$
|
671
|
|
Notes to Consolidated Financial Statements (Continued)
Note 8 - Loans Receivable, Net and Allowance for Loan Losses (Continued)
|
|
December 31, 2015
|
|
|
|
|
|
|
Greater
than 90
Days
|
|
|
|
|
|
|
|
|
|
|
|
Loans
Receivable >
90 Days and
Accruing
|
|
|
|
|
|
One-to-four family residential owner occupied
|
|
$
|
253
|
|
|
$
|
--
|
|
|
$
|
253
|
|
|
$
|
5,524
|
|
|
$
|
5,777
|
|
|
$
|
--
|
|
One-to-four family residential non-owner occupied
|
|
|
1,227
|
|
|
|
590
|
|
|
|
1,817
|
|
|
|
49,219
|
|
|
|
51,036
|
|
|
|
404
|
|
Multi-family residential
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
12,402
|
|
|
|
12,402
|
|
|
|
--
|
|
Commercial real estate
|
|
|
894
|
|
|
|
262
|
|
|
|
1,156
|
|
|
|
48,609
|
|
|
|
49,765
|
|
|
|
262
|
|
Construction
|
|
|
558
|
|
|
|
--
|
|
|
|
558
|
|
|
|
15,542
|
|
|
|
16,100
|
|
|
|
--
|
|
Home equity
|
|
|
55
|
|
|
|
--
|
|
|
|
55
|
|
|
|
7,354
|
|
|
|
7,409
|
|
|
|
--
|
|
Commercial business
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2,576
|
|
|
|
2,576
|
|
|
|
--
|
|
Other consumer
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
71
|
|
|
|
71
|
|
|
|
--
|
|
Total
|
|
$
|
2,987
|
|
|
$
|
852
|
|
|
$
|
3,839
|
|
|
$
|
141,297
|
|
|
$
|
145,136
|
|
|
$
|
666
|
|
Note 9 - Premises and Equipment
The components of premises and equipment at December 31, 2016 and 2015 are as follows (in thousands):
|
|
2016
|
|
|
2015
|
|
Land and land improvements
|
|
$
|
299
|
|
|
$
|
292
|
|
Buildings
|
|
|
1,178
|
|
|
|
1,133
|
|
Leasehold improvements
|
|
|
382
|
|
|
|
376
|
|
Furniture, fixtures and equipment
|
|
|
922
|
|
|
|
900
|
|
|
|
|
2,781
|
|
|
|
2,701
|
|
Accumulated depreciation
|
|
|
(1,051
|
)
|
|
|
(867
|
)
|
Premises and equipment, net
|
|
$
|
1,730
|
|
|
$
|
1,834
|
|
Depreciation expense for the years ended December 31, 2016 and 2015 amounted to approximately $184,000 and $182,000, respectively.
The Company leases its office at 501 Knowles Avenue in Southampton, Pennsylvania as well as other office facilities and equipment. Lease expense was $121,000 and $110,000 for the years ended December 31, 2016 and 2015, respectively.
Note 10 – Goodwill and Other Intangible, Net
On August 1, 2016, Quaint Oak Insurance Agency, LLC began operations by acquiring the renewal rights to the book of business produced and serviced by Signature Insurance Services, LLC, an independent insurance agency located in New Britain, Pennsylvania, that provides a broad range of personal and commercial insurance coverage solutions. The Company paid $1.0 million for these rights. Based on a valuation, $515,000 of the purchase price was determined to be goodwill and $485,000 was determined to be related to the renewal rights to the book of business and deemed to be an other intangible asset. This other intangible asset is being amortized over a ten year period based upon the annual retention rate of the book of business. The balance of other intangible asset at December 31, 2016 was $465,000, net of accumulated amortization of $20,000 for the year ended December 31, 2016.
Notes to Consolidated Financial Statements (Continued)
Note 10 – Goodwill and Other Intangible, Net (Continued)
Estimated amortization expense of other intangible for each of the next five years and thereafter is as follows (in thousands):
2017
|
|
$
|
49
|
|
2018
|
|
|
49
|
|
2019
|
|
|
49
|
|
2020
|
|
|
49
|
|
2021
|
|
|
49
|
|
Thereafter
|
|
|
220
|
|
Total
|
|
$
|
465
|
|
Note 11 - Deposits
Deposits and the weighted average interest rate at December 31, 2016 and 2015 consist of the following (in thousands):
|
|
2016
|
|
|
2015
|
|
|
|
Amount
|
|
|
Weighted
Average
Interest
Rate
|
|
|
Amount
|
|
|
Weighted
Average
Interest
Rate
|
|
Non-interest bearing checking accounts
|
|
$
|
5,852
|
|
|
|
--
|
%
|
|
$
|
2,407
|
|
|
|
--
|
%
|
Passbook accounts
|
|
|
1,189
|
|
|
|
0.15
|
|
|
|
1,185
|
|
|
|
0.15
|
|
Savings accounts
|
|
|
1,784
|
|
|
|
0.20
|
|
|
|
3,275
|
|
|
|
0.23
|
|
Money market accounts
|
|
|
31,114
|
|
|
|
0.79
|
|
|
|
26,571
|
|
|
|
0.77
|
|
Certificate of deposit accounts
|
|
|
137,068
|
|
|
|
1.69
|
|
|
|
115,791
|
|
|
|
1.67
|
|
|
|
$
|
177,007
|
|
|
|
1.41
|
%
|
|
$
|
149,229
|
|
|
|
1.40
|
%
|
A summary of certificates of deposit by maturity at December 31, 2016 is as follows (in thousands):
Years ending December 31:
|
|
|
|
2017
|
|
$
|
43,444
|
|
2018
|
|
|
29,787
|
|
2019
|
|
|
15,862
|
|
2020
|
|
|
23,637
|
|
2021
|
|
|
24,338
|
|
Total
|
|
$
|
137,068
|
|
The aggregate amount of certificates of deposit with a minimum denomination of $250,000 was $14.5 million and $9.8 million at December 31, 2016 and 2015, respectively.
Notes to Consolidated Financial Statements (Continued)
Note 12 - Borrowings
As of December 31, 2016, Quaint Oak Bank has a maximum borrowing capacity with the Federal Home Loan Bank of approximately $97.7 million. Quaint Oak Bank's Federal Home Loan Bank advances outstanding were $15.5 million and $13.5 million at December 31, 2016 and 2015, respectively. As of December 31, 2016, Quaint Oak Bank has $941,000 in borrowing capacity with the Federal Reserve Bank of Philadelphia. There were no borrowings under this facility at December 31, 2016 and 2015.
Federal Home Loan Bank short-term borrowings and the weighted interest rate consist of the following at December 31, 2016 and 2015 (dollars in thousands):
|
|
At or For the Year
Ended December 31,
|
|
|
|
|
|
|
|
|
FHLB short-term borrowings:
|
|
|
|
|
|
|
Average balance outstanding
|
|
$
|
5,692
|
|
|
$
|
7,077
|
|
Maximum amount outstanding at any
month-end during the period
|
|
|
7,000
|
|
|
|
8,000
|
|
Balance outstanding at end of period
|
|
|
7,000
|
|
|
|
6,000
|
|
Average interest rate during the period
|
|
|
0.54
|
%
|
|
|
0.35
|
%
|
Weighted average interest rate at end of period
|
|
|
0.74
|
%
|
|
|
0.45
|
%
|
Federal Home Loan Bank long-term borrowings and the weighted interest rate consist of the following at December 31, 2016 and 2015 (in thousands):
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Fixed rate borrowings maturing:
|
|
Amount
|
|
|
Weighted
Interest
Rate
|
|
|
Amount
|
|
|
Weighted
Interest
Rate
|
|
2016
|
|
$
|
--
|
|
|
|
--
|
%
|
|
$
|
1,000
|
|
|
|
0.88
|
%
|
2017
|
|
|
2,500
|
|
|
|
1.15
|
|
|
|
2,500
|
|
|
|
1.15
|
|
2018
|
|
|
3,000
|
|
|
|
1.46
|
|
|
|
3,000
|
|
|
|
1.46
|
|
2019
|
|
|
2,000
|
|
|
|
1.95
|
|
|
|
1,000
|
|
|
|
2.02
|
|
2020
|
|
|
1,000
|
|
|
|
2.15
|
|
|
|
--
|
|
|
|
--
|
|
Total FHLB long-term debt
|
|
$
|
8,500
|
|
|
|
1.56
|
%
|
|
$
|
7,500
|
|
|
|
1.35
|
%
|
Notes to Consolidated Financial Statements (Continued)
Note 13 - Income Taxes
The components of income tax expense for the years ended December 31, 2016 and 2015 are as follows (in thousands):
|
|
2016
|
|
|
2015
|
|
Federal:
|
|
|
|
|
|
|
Current
|
|
$
|
888
|
|
|
$
|
731
|
|
Deferred
|
|
|
(185
|
)
|
|
|
(38
|
)
|
Total federal
|
|
|
703
|
|
|
|
693
|
|
State, current
|
|
|
33
|
|
|
|
30
|
|
Total
|
|
$
|
736
|
|
|
$
|
723
|
|
The following table represents reconciliation between the reported income tax expense and the income tax expense which would be computed by applying the normal federal income tax rate of 34% to income before taxes for the years ended December 31, 2016 and 2015 is as follows (in thousands):
|
|
2016
|
|
|
2015
|
|
Federal income tax at statutory rate
|
|
$
|
759
|
|
|
$
|
677
|
|
State tax, net of federal benefit
|
|
|
22
|
|
|
|
20
|
|
Stock compensation expense
|
|
|
(21
|
)
|
|
|
49
|
|
Other
|
|
|
(24
|
)
|
|
|
(23
|
)
|
Total
|
|
$
|
736
|
|
|
$
|
723
|
|
The components of the net deferred tax asset at December 31, 2016 and 2015 are as follows (in thousands):
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
546
|
|
|
$
|
446
|
|
Stock-based compensation
|
|
|
25
|
|
|
|
35
|
|
Interest on non-accrual loans
|
|
|
6
|
|
|
|
2
|
|
Unrealized loss on investment securities available for sale
|
|
|
19
|
|
|
|
6
|
|
Deferred loan fees
|
|
|
235
|
|
|
|
176
|
|
Organization cost
|
|
|
2
|
|
|
|
2
|
|
Total deferred tax assets
|
|
|
833
|
|
|
|
667
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
Bank premises and equipment
|
|
|
(103
|
)
|
|
|
(138
|
)
|
Intangible
|
|
|
(3
|
)
|
|
|
--
|
|
Total deferred tax liabilities
|
|
|
(106
|
)
|
|
|
(138
|
)
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Asset
|
|
$
|
727
|
|
|
$
|
529
|
|
The net deferred tax asset at December 31, 2016 and 2015 of $727,000 and $529,000, respectively, is included in other assets. No valuation allowance was established at December 31, 2016 and 2015, in view of the Company's ability to carry back taxes paid in previous years and certain tax strategies, coupled with the anticipated future taxable income as evidenced by the Company's earnings potential.
Notes to Consolidated Financial Statements (Continued)
Note 14 – Stock Compensation Plans
Employee Stock Ownership Plan
The Company maintains an Employee Stock Ownership Plan (ESOP) for the benefit of employees who meet the eligibility requirements of the plan. Using proceeds from a loan from the Company, the ESOP purchased 8%, or 222,180 shares of the Company's then outstanding common stock in the open market during 2007. The Bank makes cash contributions to the ESOP on a quarterly basis sufficient to enable the ESOP to make the required loan payments to the Company. The loan bears an interest rate of 7.75% per annum, with principal and interest to be paid quarterly in equal installments over 15 years. The loan is secured by the unallocated shares of common stock held by the ESOP.
Shares of the Company's common stock purchased by the ESOP are held in a suspense account and reported as unallocated common stock held by the ESOP in stockholders' equity until released for allocation to participants. As the debt is repaid, shares are released from collateral and are allocated to each eligible participant based on the ratio of each such participant's base compensation to the total base compensation of eligible plan participants. As the unearned shares are committed to be released and allocated among participants, the Company recognizes compensation expense equal to the average market value of the shares, and the shares become outstanding for earnings per share computations. During the years ended December 31, 2016 and 2015, the Company recognized $182,000 and $170,000 of ESOP expense, respectively.
The following table represents the components of the ESOP shares at December 31, 2016 and 2015:
|
|
2016
|
|
|
2015
|
|
Allocated shares
|
|
|
153,647
|
|
|
|
139,219
|
|
Unreleased shares
|
|
|
68,533
|
|
|
|
82,961
|
|
Total ESOP shares
|
|
|
222,180
|
|
|
|
222,180
|
|
|
|
|
|
|
|
|
|
|
Fair value of unreleased shares (in thousands)
|
|
$
|
822
|
|
|
$
|
1,004
|
|
Recognition and Retention and Stock Incentive Plans
In May 2008, the shareholders of Quaint Oak Bancorp approved the adoption of the 2008 Recognition and Retention Plan (the "RRP") and Trust Agreement. In order to fund the RRP, the 2008 Recognition and Retention Plan Trust acquired 111,090 shares of the Company's stock in the open market at an average price of $4.68 totaling $520,000. In May 2013, the shareholders of Quaint Oak Bancorp approved the adoption of the 2013 Stock Incentive Plan (the "Stock Incentive Plan"). The Stock Incentive Plan provides that no more than 48,750, or 25%, of the shares may be granted as restricted stock awards.
As of December 31, 2016, a total of 20,524 awards of restricted stock were unvested under the RRP and Stock Incentive Plan and 21,968 restricted stock awards were available for future grant under the Stock Incentive Plan and none under the RRP. The RRP and Stock Incentive Plan share awards have vesting periods of five years.
Notes to Consolidated Financial Statements (Continued)
Note 14 – Stock Compensation Plans (Continued)
Recognition and Retention and Stock Incentive Plans
(Continued)
A summary of the status of the shares under the RRP and Stock Incentive Plan as of December 31, 2016 and 2015 is as follows:
|
|
2016
|
|
|
2015
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
|
Number of
Shares
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
Unvested at the beginning of the year
|
|
|
30,784
|
|
|
$
|
8.10
|
|
|
|
41,966
|
|
|
$
|
8.09
|
|
Granted
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Vested
|
|
|
(10,260
|
)
|
|
|
8.10
|
|
|
|
(10,582
|
)
|
|
|
8.06
|
|
Forfeited
|
|
|
--
|
|
|
|
--
|
|
|
|
(600
|
)
|
|
|
8.10
|
|
Unvested
at the end of the year
|
|
|
20,524
|
|
|
$
|
8.10
|
|
|
|
30,784
|
|
|
$
|
8.10
|
|
Compensation expense on the restricted stock awards is recognized ratably over the five year vesting period in an amount which is equal to the fair value of the common stock at the date of grant. During the years ended December 31, 2016 and 2015, the Company recognized $84,000 and $82,000 of compensation expense, respectively. A tax benefit of approximately $29,000 and $28,000, respectively was recognized during each of these periods. As of December 31, 2016, approximately $115,000 in additional compensation expense will be recognized over the remaining service period of approximately 1.4 years.
Stock Options
In May 2008, the shareholders of Quaint Oak Bancorp approved the adoption of the 2008 Stock Option Plan (the "Option Plan"). The Option Plan authorizes the grant of stock options to officers, employees and directors of the Company to acquire 277,726 shares of common stock with an exercise price no less than the fair market value on the date of the grant. The Stock Incentive Plan approved by shareholders in May 2013 covered a total of 195,000 shares, of which 48,750 may be restricted stock awards, for a balance of 146,250 stock options assuming all the restricted shares are awarded.
For grants in May 2008, the Compensation Committee of the Board of Directors determined to grant the stock options at an exercise price equal to $5.00 per share (split-adjusted) which is higher than the fair market value of the common stock on the grant date. All incentive stock options issued under the Option Plan and the Stock Incentive Plan are intended to comply with the requirements of Section 422 of the Internal Revenue Code.
As of December 31, 2016, a total of 316,348 grants of stock options were outstanding under the Option Plan and Stock Incentive Plan and 56,276 stock options were available for future grant under the Stock Incentive Plan and none under the Option Plan. Options will become vested and exercisable over a five year period and are generally exercisable for a period of ten years after the grant date.
Notes to Consolidated Financial Statements (Continued)
Note 14 – Stock Compensation Plans (Continued)
Stock Options
(Continued)
A summary of option activity under the
Company
's Option Plan and Stock Incentive Plan for the years ended December 31
, 2016 and 2015
is
as follows:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (in
years)
|
|
|
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life (in
years)
|
|
Outstanding at the beginning of the year
|
|
|
354,266
|
|
|
$
|
6.33
|
|
|
|
4.7
|
|
|
|
369,140
|
|
|
$
|
6.30
|
|
|
|
5.7
|
|
Granted
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Exercised
|
|
|
(37,918
|
)
|
|
|
5.00
|
|
|
|
--
|
|
|
|
(13,434
|
)
|
|
|
5.00
|
|
|
|
--
|
|
Forfeited
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(1,440
|
)
|
|
|
8.10
|
|
|
|
--
|
|
Outstanding at the end of the period
|
|
|
316,348
|
|
|
$
|
6.49
|
|
|
|
3.8
|
|
|
|
354,266
|
|
|
$
|
6.33
|
|
|
|
4.7
|
|
Exercisable at the end of the period
|
|
|
255,708
|
|
|
$
|
6.11
|
|
|
|
3.2
|
|
|
|
261,866
|
|
|
$
|
5.71
|
|
|
|
3.5
|
|
At December 31, 2016, the aggregate intrinsic value of options outstanding was $1.7 million and options exercisable was $1.5 million. At December 31, 2015, the aggregate intrinsic value of the options outstanding was $2.0 million and options exercisable was $1.7 million. The aggregate intrinsic value of a stock option represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holder had all option holders exercised their options on December 31, 2016 and December 31, 2015. This amount changes based on changes in the market value of the Company's common stock.
During the years ended December 31, 2016 and 2015, the Company recognized $45,000 and $53,000 of compensation expense, respectively. A tax benefit of approximately $11,000 and $14,000, respectively, was recognized during these periods. As of December 31, 2016, approximately $62,000 in additional compensation expense will be recognized over the remaining service period of approximately 1.4 years.
Note 15 - Transactions with Executive Officers and Directors
Certain directors and executive officers of the Company, their families and their affiliates are customers of the Bank. Any transactions with such parties, including loans and commitments, are in the ordinary course of business at normal terms, including interest rate and collateralization, prevailing at the time and do not represent more than normal risks of collectability. None of these individuals were indebted to the Company for loans at December 31, 2016 and 2015, respectively.
Notes to Consolidated Financial Statements (Continued)
Note 16 - Financial Instruments with Off-Balance Sheet Risk
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet.
The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments.
A summary of the Company's financial instrument commitments at December 31, 2016 and 2015 is as follows (in thousands):
|
|
2016
|
|
|
2015
|
|
Commitments to originate loans
|
|
$
|
10,228
|
|
|
$
|
5,995
|
|
Unfunded commitments under lines of credit
|
|
|
15,443
|
|
|
|
12,489
|
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation. Collateral held varies, but includes principally residential and commercial real estate
.
The Company leases its office at 501 Knowles Avenue in Southampton, Pennsylvania as well as other office facilities and equipment. The leases range in terms from one year to 10 years, some of which include renewal options as well as specific provisions relating to rent increases.
Future minimum annual rental payments required under non-cancelable operating leases are as follows (in thousands):
Year
|
|
Rental Amount
|
|
2017
|
|
$
|
96
|
|
2018
|
|
|
72
|
|
2019
|
|
|
74
|
|
2020
|
|
|
72
|
|
2021
|
|
|
60
|
|
Thereafter
|
|
|
--
|
|
Total
|
|
$
|
374
|
|
Notes to Consolidated Financial Statements (Continued)
Note 17 - Regulatory Matters
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth below) of total, Tier 1, and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 2016, that the Bank meets all capital adequacy requirements to which it is subject.
In July of 2013 the respective U.S. federal banking agencies issued final rules implementing Basel III and the Dodd-Frank Act capital requirements to be fully-phased in on a global basis on January 1, 2019. The new regulations established a new tangible common equity capital requirement, increase the minimum requirement for the current Tier 1 risk-weighted asset ("RWA") ratio, phase out certain kinds of tangibles treated as capital and certain types of instruments and change the risk weightings of certain assets used to determine requirement capital ratios. Provisions of the Dodd-Frank Act generally require these capital rules to apply to bank holding companies and their subsidiaries. The new common equity Tier 1 capital component requires capital of the highest quality-predominantly composed of retained earnings and common stock instruments. For community banks, such as Quaint Oak Bank, a common equity Tier 1 capital ratio of 4.5% became effective on January 1, 2015. The new capital rules also increased the current minimum of Tier 1 capital ratio from 4.0% to 6.0% beginning on January 1, 2015. In addition, in order to make capital distributions and pay discretionary bonuses to executive officers without restriction, an institution must also maintain greater than 2.5% in common equity attributable to a capital conservation buffer to be phased in from January 1, 2016 until January 1, 2019. The new rules also increase the risk weights for several categories of assets, including an increase from 100% to 150% for certain acquisition, development and construction loans and more than 90-day past due exposures. The new capital rules maintain the general structure of the prompt corrective action rules, but incorporate the new common equity Tier 1 capital requirement and the increased Tier 1 RWA requirement into the prompt corrective action framework.
Bank holding companies are generally subject to statutory capital requirements, which were implemented by certain of the new capital regulations described above that became effective on January 1, 2015. However, the Small Banking Holding Company Policy Statement exempts certain small bank holding companies like the Company from those requirements provided that they meet certain conditions.
As of December 31, 2016 the Bank was well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since December 31, 2016 that management believes have changed the Bank's category. The Company's ratios do not differ significantly from the Bank's ratios presented below.
Notes to Consolidated Financial Statements (Continued)
Note 17 - Regulatory Matters (Continued)
The Bank's actual capital amounts and ratios at December 31, 2016 and 2015 and the minimum amounts and ratios required for capital adequacy purposes and to be well capitalized under the prompt corrective action provisions are as follows (dollars in thousands):
|
|
Actual
|
|
|
For Capital Adequacy
Purposes
|
|
|
To be Well Capitalized
Under Prompt
Corrective Action
Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
As of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets)
|
|
$
|
20,302
|
|
|
|
13.20
|
%
|
|
$
|
≥ 12,307
|
|
|
|
≥ 8.00
|
%
|
|
$
|
≥ 15,383
|
|
|
|
≥ 10.00
|
%
|
Tier 1 capital (to risk-weighted assets)
|
|
|
18,670
|
|
|
|
12.14
|
|
|
|
≥ 9,230
|
|
|
|
≥ 6.00
|
|
|
|
≥ 12,307
|
|
|
|
≥ 8.00
|
|
Common Equity Tier 1 capital (to risk-weighted assets)
|
18,670
|
|
|
|
12.14
|
|
|
|
≥ 6,922
|
|
|
|
≥ 4.50
|
|
|
|
≥ 9,999
|
|
|
|
≥ 6.50
|
|
Tier 1 capital (to average assets)
|
|
|
18,670
|
|
|
|
8.94
|
|
|
|
≥ 8,356
|
|
|
|
≥ 4.00
|
|
|
|
≥ 10,445
|
|
|
|
≥ 5.00
|
|
|
|
Actual
|
|
|
For Capital Adequacy
Purposes
|
|
|
To be Well Capitalized
Under Prompt
Corrective Action
Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
As of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk-weighted assets)
|
|
$
|
18,953
|
|
|
|
15.76
|
%
|
|
$
|
≥ 9,622
|
|
|
|
≥8.00
|
%
|
|
$
|
≥12,027
|
|
|
|
≥10.00
|
%
|
Tier 1 capital (to risk-weighted assets)
|
|
|
17,612
|
|
|
|
14.64
|
|
|
|
≥ 7,216
|
|
|
|
≥6.00
|
|
|
|
≥ 9,622
|
|
|
|
≥ 8.00
|
|
Common Equity Tier 1 capital (to risk-weighted assets)
|
17,612
|
|
|
|
14.64
|
|
|
|
≥ 5,412
|
|
|
|
≥4.50
|
|
|
|
≥ 7,818
|
|
|
|
≥ 6.50
|
|
Tier 1 capital (to average assets)
|
|
|
17,612
|
|
|
|
9.84
|
|
|
|
≥ 7,162
|
|
|
|
≥4.00
|
|
|
|
≥ 8,952
|
|
|
|
≥ 5.00
|
|
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act the Board of Governors of the Federal Reserve System as the primary regulator for the Company is authorized to extend leverage capital requirements and risk based capital requirements applicable to depository institutions and bank holding companies to thrift holding companies. Legislation adopted in late 2014 generally exempts small savings and loan holding companies like Quaint Oak Bancorp from these capital requirements if certain conditions are met.
Banking regulations place certain restrictions on dividends paid by the Bank to the Company. The Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval.
Notes to Consolidated Financial Statements (Continued)
Note 18 – Fair Value Measurements and Fair Values of Financial Instruments
Fair value estimates are based on quoted market prices, if available, quoted market prices of similar assets or liabilities, or the present value of expected future cash flows and other valuation techniques. These valuations are significantly affected by discount rates, cash flow assumptions, and risk assumptions used. Therefore, fair values estimates may not be substantiated by comparison to independent markets and are not intended to reflect the proceeds that may be realizable in an immediate settlement of the instruments.
Fair value is determined at one point in time and is not representative of future value. These amounts do not reflect the total value of a going concern organization. Management does not have the intention to dispose of a significant portion of its assets and liabilities and therefore, the unrealized gains or losses should not be interpreted as a forecast of future earnings and cash flows.
The following disclosures show the hierarchal disclosure framework associated with the level of pricing observations utilized in measuring assets and liabilities at fair value. The three broad levels of pricing are as follows:
Level I:
|
Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
|
Level II:
|
Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.
|
Level III:
|
Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
|
This hierarchy requires the use of observable market data when available.
The following is a discussion of assets and liabilities measured at fair value on a recurring and non-recurring basis and valuation techniques applied:
Investment Securities Available For Sale:
The fair value of securities available for sale are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted prices.
We may be required from time to time to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets.
Impaired Loans:
Impaired loans are carried at the lower of cost or the fair value of the collateral for collateral-dependent loans less estimated costs to sell. Collateral is primarily in the form of real estate. The use of independent appraisals, discounted cash flow models and management's best judgment are significant inputs in arriving at the fair value measure of the underlying collateral and impaired loans are therefore classified within Level 3 of the fair value hierarchy.
Other Real Estate Owned:
Other real estate owned is carried at the lower of the investment in the real estate or the fair value of the real estate less estimated selling costs. The use of independent appraisals and management's best judgment are significant inputs in arriving at the fair value measure of the underlying collateral and therefore other real estate owned is classified within Level 3 of the fair value hierarchy.
Notes to Consolidated Financial Statements (Continued)
Note 18 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)
The table below sets forth the financial assets and liabilities that were accounted for on a recurring and nonrecurring basis by level within the fair value hierarchy as of December 31, 2016 (in thousands):
|
|
December 31, 2016
|
|
|
|
Fair Value Measurements Using:
|
|
|
|
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
|
Unobservable
Inputs
(Level 3)
|
|
Recurring fair value measurements
|
|
|
|
Investment securities available for sale
|
|
|
|
Governmental National Mortgage Association mortgage-backed securities
|
|
$
|
6,590
|
|
|
$
|
--
|
|
|
$
|
6,590
|
|
|
$
|
--
|
|
Federal Home Loan Mortgage Corporation mortgage-backed securities
|
|
|
1,871
|
|
|
|
--
|
|
|
|
1,871
|
|
|
|
--
|
|
Federal National Mortgage Association mortgage-backed securities
|
|
|
740
|
|
|
|
--
|
|
|
|
740
|
|
|
|
--
|
|
Debt securities, U.S. government agency
|
|
|
354
|
|
|
|
--
|
|
|
|
354
|
|
|
|
--
|
|
Total investment securities available for sale
|
|
$
|
9,555
|
|
|
$
|
--
|
|
|
$
|
9,555
|
|
|
$
|
--
|
|
Total recurring fair value measurements
|
|
$
|
9,555
|
|
|
$
|
--
|
|
|
$
|
9,555
|
|
|
$
|
--
|
|
|
|
|
|
Nonrecurring fair value measurements
|
|
|
|
Impaired loans
|
|
$
|
1,895
|
|
|
$
|
--
|
|
|
$
|
-
|
|
|
$
|
1,895
|
|
Other real estate owned
|
|
|
435
|
|
|
|
--
|
|
|
|
-
|
|
|
|
435
|
|
Total nonrecurring fair value measurements
|
|
$
|
2,330
|
|
|
$
|
--
|
|
|
$
|
-
|
|
|
$
|
2,330
|
|
The table below sets forth the financial assets and liabilities that were accounted for on a recurring and nonrecurring basis by level within the fair value hierarchy as of December 31, 2015 (in thousands):
|
|
December 31, 2015
|
|
|
|
Fair Value Measurements Using:
|
|
|
|
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
|
Unobservable
Inputs
(Level 3)
|
|
Recurring fair value measurements
|
|
|
|
Investment securities available for sale
|
|
|
|
Governmental National Mortgage Association mortgage-backed securities
|
|
$
|
1,990
|
|
|
$
|
--
|
|
|
$
|
1,990
|
|
|
$
|
--
|
|
Federal Home Loan Mortgage Corporation mortgage-backed securities
|
|
|
1,015
|
|
|
|
--
|
|
|
|
1,015
|
|
|
|
--
|
|
Total investment securities available for sale
|
|
$
|
3,005
|
|
|
$
|
--
|
|
|
$
|
3,005
|
|
|
$
|
--
|
|
Total recurring fair value measurements
|
|
$
|
3,005
|
|
|
$
|
--
|
|
|
$
|
3,005
|
|
|
$
|
--
|
|
|
|
|
|
Nonrecurring fair value measurements
|
|
|
|
Impaired loans
|
|
$
|
1,151
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
1,151
|
|
Other real estate owned
|
|
|
1,410
|
|
|
|
--
|
|
|
|
--
|
|
|
|
1,410
|
|
Total nonrecurring fair value measurements
|
|
$
|
2,561
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
2,561
|
|
Notes to Consolidated Financial Statements (Continued)
Note 18 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has used Level 3 inputs to determine fair value as of December 31, 2016 and 2015 (dollars in thousands):
|
|
December 31, 2016
|
|
|
|
Quantitative Information About Level 3 Fair Value Measurements
|
|
|
|
Total Fair
|
|
Valuation
|
|
Unobservable
|
|
Range (Weighted
|
|
|
|
Value
|
|
Techniques
|
|
Input
|
|
Average)
|
|
Impaired loans
|
|
$
|
1,895
|
|
Appraisal of collateral
(1)
|
|
Appraisal adjustments
(2)
|
|
|
0%-22% (2
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
$
|
435
|
|
Appraisal of collateral
(1)
|
|
Appraisal adjustments (
2)
|
|
|
0%-29% (12
|
%)
|
|
|
December 31, 2015
|
|
|
|
Quantitative Information About Level 3 Fair Value Measurements
|
|
|
|
Total Fair
|
|
Valuation
|
|
Unobservable
|
|
Range (Weighted
|
|
|
|
Value
|
|
Techniques
|
|
Input
|
|
Average)
|
|
Impaired loans
|
|
$
|
1,151
|
|
Appraisal of collateral
(1)
|
|
Appraisal adjustments
(2)
|
|
|
0%-25% (3
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
$
|
1,410
|
|
Appraisal of collateral
(1)
|
|
Appraisal adjustments (
2)
|
|
|
0%-29% (5
|
%)
|
_________________
(1)
|
Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are identifiable.
|
(2)
|
Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percentage of the appraisal.
|
Notes to Consolidated Financial Statements (Continued)
Note 18 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)
The estimated fair values of the Company's financial instruments were as follows at December 31, 2016 and December 31, 2015 (in thousands):
|
|
|
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Carrying
|
|
|
Fair Value
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Amount
|
|
|
Estimate
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,300
|
|
|
$
|
9,300
|
|
|
$
|
9,300
|
|
|
$
|
--
|
|
|
$
|
--
|
|
Investment in interest-earning time deposits
|
|
|
6,098
|
|
|
|
6,163
|
|
|
|
--
|
|
|
|
--
|
|
|
|
6,163
|
|
Investment securities available for sale
|
|
|
9,555
|
|
|
|
9,555
|
|
|
|
--
|
|
|
|
9,555
|
|
|
|
--
|
|
Loans held for sale
|
|
|
4,712
|
|
|
|
4,879
|
|
|
|
--
|
|
|
|
4,879
|
|
|
|
--
|
|
Loans receivable, net
|
|
|
176,807
|
|
|
|
177,870
|
|
|
|
--
|
|
|
|
--
|
|
|
|
177,870
|
|
Accrued interest receivable
|
|
|
862
|
|
|
|
862
|
|
|
|
862
|
|
|
|
--
|
|
|
|
--
|
|
Investment in FHLB stock
|
|
|
713
|
|
|
|
713
|
|
|
|
713
|
|
|
|
--
|
|
|
|
--
|
|
Bank-owned life insurance
|
|
|
3,728
|
|
|
|
3,728
|
|
|
|
3,728
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
177,007
|
|
|
|
179,050
|
|
|
|
39,939
|
|
|
|
--
|
|
|
|
139,111
|
|
FHLB short-term borrowings
|
|
|
7,000
|
|
|
|
7,000
|
|
|
|
7,000
|
|
|
|
--
|
|
|
|
--
|
|
FHLB long-term borrowings
|
|
|
8,500
|
|
|
|
8,507
|
|
|
|
--
|
|
|
|
--
|
|
|
|
8,507
|
|
Accrued interest payable
|
|
|
142
|
|
|
|
142
|
|
|
|
142
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Observable
|
|
|
|
Carrying
|
|
|
Fair Value
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Amount
|
|
|
Estimate
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
17,206
|
|
|
$
|
17,206
|
|
|
$
|
17,206
|
|
|
$
|
--
|
|
|
$
|
--
|
|
Investment in interest-earning time deposits
|
|
|
6,136
|
|
|
|
6,206
|
|
|
|
--
|
|
|
|
--
|
|
|
|
6,206
|
|
Investment securities available for sale
|
|
|
3,005
|
|
|
|
3,005
|
|
|
|
--
|
|
|
|
3,005
|
|
|
|
--
|
|
Loans held for sale
|
|
|
5,064
|
|
|
|
5,244
|
|
|
|
--
|
|
|
|
5,244
|
|
|
|
--
|
|
Loans receivable, net
|
|
|
143,305
|
|
|
|
145,134
|
|
|
|
--
|
|
|
|
--
|
|
|
|
145,134
|
|
Accrued interest receivable
|
|
|
983
|
|
|
|
983
|
|
|
|
983
|
|
|
|
--
|
|
|
|
--
|
|
Investment in FHLB stock
|
|
|
618
|
|
|
|
618
|
|
|
|
618
|
|
|
|
--
|
|
|
|
--
|
|
Bank-owned life insurance
|
|
|
3,638
|
|
|
|
3,638
|
|
|
|
3,638
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
149,229
|
|
|
|
150,644
|
|
|
|
33,438
|
|
|
|
--
|
|
|
|
117,206
|
|
FHLB short-term borrowings
|
|
|
6,000
|
|
|
|
6,000
|
|
|
|
6,000
|
|
|
|
--
|
|
|
|
--
|
|
FHLB long-term borrowings
|
|
|
7,500
|
|
|
|
7,479
|
|
|
|
--
|
|
|
|
--
|
|
|
|
7,479
|
|
Accrued interest payable
|
|
|
123
|
|
|
|
123
|
|
|
|
123
|
|
|
|
--
|
|
|
|
--
|
|
Notes to Consolidated Financial Statements (Continued)
Note 18 – Fair Value Measurements and Fair Values of Financial Instruments (Continued)
The following methods and assumptions were used to measure the fair value of financial instruments recorded at cost on the Company's consolidated balance sheets:
Cash and Cash Equivalents.
The carrying amounts reported in the consolidated balance sheets for cash and short-term instruments approximate those assets' fair values.
Interest-Earning Time Deposits.
Fair values for interest-earning time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits. The Company generally purchases amounts below the insured limit, limiting the amount of credit risk on these time deposits.
Loans Held for Sale
. Fair values of loans held for sale are based on commitments on hand from investors at prevailing market rates.
Loans Receivable, Net.
The fair values of loans are estimated using discounted cash flow methodology. The discount rates take into account interest rates currently being offered to customers for loans with similar terms, the credit risk associated with the loan and market factors, including liquidity. The valuation of the loan portfolio reflects discounts that the Company believes are consistent with transactions occurring in the market place for both performing and distressed loan types. The carrying value that fair value is compared to is net of the allowance for loan losses and other associated premiums and discounts. Due to the significant judgment involved in evaluating credit quality, loans are classified with Level 3 of the fair value hierarchy.
Accrued Interest Receivable.
The carrying amount of accrued interest receivable approximates its fair value.
Investment in Federal Home Loan Bank Stock.
The carrying amount of restricted investment in Federal Home Loan Bank stock approximates fair value, and considers the limited marketability of such securities.
Bank-Owned Life Insurance.
The carrying amount of the investment in bank-owned life insurance approximates its cash surrender value under the insurance policies.
Deposits.
The carrying amount is considered a reasonable estimate of fair value for demand savings and money market deposit accounts. The fair value of fixed maturity certificates of deposit is estimated by a discounted cash flow method using the rates currently offered for deposits of similar maturities.
Federal Home Loan Bank Borrowings.
Fair values of long-term FHLB borrowings are estimated based on rates currently available to the Company for similar terms and remaining maturities. The carrying amount of short-term FHLB borrowings approximates its fair value.
Accrued Interest Payable.
The carrying amount of accrued interest payable approximates its fair value.
Off-Balance Sheet Financial Instruments.
Off-balance sheet financial instruments consist of commitments to extend credit. Fair values for commitments to extend credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreement and the present credit standing of the counterparties. The estimated fair value of the commitments to extend credit are insignificant and therefore are not presented in the above table.
Notes to Consolidated Financial Statements (Continued)
Note 19 – Quaint Oak Bancorp, Inc. (Parent Company Only)
Condensed financial statements of Quaint Oak Bancorp, Inc. are as follows (in thousands):
Balance Sheets
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
206
|
|
|
$
|
76
|
|
Investment in Quaint Oak Bank
|
|
|
19,201
|
|
|
|
17,612
|
|
Premises and equipment, net
|
|
|
1,322
|
|
|
|
1,311
|
|
Other assets
|
|
|
77
|
|
|
|
50
|
|
Total Assets
|
|
$
|
20,806
|
|
|
$
|
19,049
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
$
|
16
|
|
|
$
|
13
|
|
Stockholders' equity
|
|
|
20,790
|
|
|
|
19,036
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
20,806
|
|
|
$
|
19,049
|
|
Statements of Income
|
|
For the Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Income
|
|
|
|
|
|
|
Rental income
|
|
$
|
108
|
|
|
$
|
106
|
|
Total Income
|
|
|
108
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Occupancy and equipment expense
|
|
|
96
|
|
|
|
99
|
|
Other expenses
|
|
|
91
|
|
|
|
95
|
|
Total Expenses
|
|
|
187
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
Net Loss Before Income Taxes
|
|
|
(79
|
)
|
|
|
(88
|
)
|
Equity in Undistributed Net Income of Subsidiary
|
|
|
1,550
|
|
|
|
1,329
|
|
Income Tax Benefit
|
|
|
27
|
|
|
|
30
|
|
Net Income
|
|
$
|
1,498
|
|
|
$
|
1,271
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
$
|
1,472
|
|
|
$
|
1,295
|
|
Notes to Consolidated Financial Statements (Continued)
Note 19 – Quaint Oak Bancorp, Inc. (Parent Company Only) (Continued)
Statements of Cash Flows
|
|
For the Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Operating Activities
|
|
|
|
|
|
|
Net income
|
|
$
|
1,498
|
|
|
$
|
1,271
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Undistributed net income in subsidiary
|
|
|
(1,550
|
)
|
|
|
(1,329
|
)
|
Depreciation expense
|
|
|
35
|
|
|
|
27
|
|
Stock-based compensation expense
|
|
|
300
|
|
|
|
294
|
|
Increase in other assets
|
|
|
(92
|
)
|
|
|
(54
|
)
|
Increase in other liabilities
|
|
|
3
|
|
|
|
--
|
|
Net cash provided by operating activities
|
|
|
194
|
|
|
|
209
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(46
|
)
|
|
|
(264
|
)
|
Net cash used in investing activities
|
|
|
(46
|
)
|
|
|
(264
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(283
|
)
|
|
|
(239
|
)
|
Purchase of treasury stock
|
|
|
(17
|
)
|
|
|
(10
|
)
|
Proceeds from the reissuance of treasury stock
|
|
|
92
|
|
|
|
54
|
|
Proceeds from the exercise of stock options
|
|
|
190
|
|
|
|
67
|
|
Net cash used in financing activities
|
|
|
(18
|
)
|
|
|
(128
|
)
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
|
|
130
|
|
|
|
(183
|
)
|
Cash and Cash Equivalents-Beginning of Year
|
|
|
76
|
|
|
|
259
|
|
Cash and Cash Equivalents-End of Year
|
|
$
|
206
|
|
|
$
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIRECTORS AND EXECUTIVE OFFICERS
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Directors
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Robert T. Strong
President and Chief Executive Officer
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James J. Clarke, Ph.D.
Principal of Clarke Consulting,
Villanova, Pennsylvania
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Robert J. Phillips
Chairman of the Board
Partner, Phillips and Phillips Enterprises,
Doylestown, Pennsylvania
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Andrew E. DiPiero, Jr., Esq.
Attorney with Baratta, Russell & Baratta,
Huntingdon Valley, Pennsylvania
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George M. Ager, Jr.
Currently retired
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Kenneth R. Gant, MBA
Associate Agent, Landis Agencies,
Quakertown, Pennsylvania
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John J. Augustine, CPA
Executive Vice President & Chief Financial Officer
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Marsh B. Spink
Managing Partner of Lawn-Crest Realty,
Philadelphia, Pennsylvania
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Executive Officers
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Diane J. Colyer
Senior Vice President and Corporate Secretary
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Robert Farrer
Vice President Risk and Compliance, Information Technology Security Officer and Community Reinvestment Act Officer
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Curt T. Schulmeister
Chief Lending Officer
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William R. Gonzalez
Senior Vice President, Business Development
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